Chip stocks have soared since last year, alongside a boom in artificial intelligence (AI). As an industry leader, Advanced micro devices‘ (NASDAQ: AMD) The stock is up 28% since June last year, outperforming the S&P500‘s increase of 24% over the same period. The company has gathered investors with a promising role in graphics processing units (GPUs), the chips needed for training AI models.
But while the growth of AMD stock has benefited current investors, it has also raised the price of entry for new investors.
This chart uses price-to-sales (P/S) and forward price-to-earnings ratios to compare AMD’s valuation with two other companies active in AI, Intel (NASDAQ: INTC) And Amazon (NASDAQ: AMZN). For both metrics, Intel and Amazon are a better value than AMD. So while AMD likely has a bright long-term future in AI, it may be worth investing in alternative AI stocks that offer better value for money.
So forget AMD and consider buying one of these artificial intelligence stocks instead.
1. Intel
You might be surprised to see Intel on this list after its achievements over the past decade. The company is coming out of a slump that has seen its shares fall 47% since 2021, along with revenue declines and lost market share in what was once its bread and butter, the central processing unit (CPU) market.
However, the recent restructuring indicates that it is not over for Intel and that the company is on the road to recovery. Meanwhile, the stock is one of the biggest buys in AI right now, making it hard to ignore as a long-term option.
Intel is preparing to invest $100 billion in building chip factories across the US. The company has secured nearly $20 billion in federal grants and loans, with hopes of securing another $25 billion in tax breaks. The chipmaker is partially supported by the federal CHIPS Act, a 2022 initiative to increase foundry capacity in the US.
Intel’s manufacturing expansion is especially promising because of its AI potential. CEO Pat Gelsinger expects the upcoming factory in Ohio to become “the largest production site for AI chips in the world” as early as 2027. Meanwhile, Intel differentiates itself from competitors like Nvidia and AMD, which focus on design over manufacturing. Intel could see a big profit boost in the coming years as AI growth continues to drive demand for chips.
The company still has a long way to go before it sees a significant return on its hefty investment, but for investors it could be worth getting in on the ground floor and potentially benefiting from the comeback.
2. Amazon
Amazon is one of the most attractive AI stocks right now, with its cloud platform Amazon Web Services (AWS) playing a powerful role in the sector. Meanwhile, the company’s P/S ratio of around 3 makes it a buy, despite the share price being up 45% in the last twelve months.
The retail giant’s activities have exploded since last year. Amazon’s operating profit increased by more than 1,300%, with free cash flow doubling to almost $46 billion. The company has posted significant gains in its e-commerce segments, which benefited from declining inflation and management’s cost-cutting measures.
However, all eyes have been on AWS in recent months. The company’s leading 31% market share in cloud computing may give it an edge in AI, which it is taking full advantage of by expanding AWS. Amazon is expanding its cloud capacity by investing billions in building more data centers worldwide.
The tech giant has a 15-year plan to develop AWS infrastructure in Taiwan. Meanwhile, Amazon has committed to investing $13 billion in a similar project in India, which will scale its cloud infrastructure in one of the fastest-growing data center markets in the world.
In addition to significant cash reserves and a dominant position in the cloud market, Amazon’s stock is worth considering based on the range of ways it could boost its business with the generative technology. Expanding its AI capabilities would allow the company to better analyze shopping trends and more accurately recommend products on its retail site, improve shipping logistics, expand its AI offerings on AWS, and provide more targeted advertising on its Prime Video streaming service.
Amazon is on a promising growth trajectory in AI and is worth investing in AMD in June.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Forget AMD: 2 Artificial Intelligence (AI) Stocks to Buy Instead was originally published by The Motley Fool
